Edufacts™
June 2008
Few students graduating with skills to manage finances well
Many of today's students are graduating from high school with the equivalent of an "F" in financial literacy. Basic concepts of saving, investing, and using credit wisely elude many students, according to a biennial test administered by the Jump$tart Coalition for Personal Financial Literacy.
The latest test was given to more than 6,800 high school seniors in 40 states. High school seniors have scored consistently low since the test was first administered in 1997. Students responded correctly to about 57 percent of the questions that year — the highest score. Grades on this year's survey showed a marked decline — down to 48 percent.
Students continue to be challenged by a range of financial concepts. Only 42 percent understood that sales tax actually adds to the cost of a purchase. Less than 49 percent correctly said that someone who pays the minimum amount on a credit card will pay more in finance charges than someone who pays the entire balance. And only 17 percent answered that stocks are likely to yield better returns than savings bonds.
"The data suggest that not only age, but problem-solving ability are important factors in students' abilities to grasp and apply financial information," said Laura Levine, executive director of the national coalition, which is comprised of more than 180 companies and affiliated organizations.
Many colleges recognize that low financial literacy is an issue for their students, especially incoming freshmen. Financial aid offices regularly field questions on a variety of rudimentary financial skills, including how to budget or how to build good credit. A growing number of financial aid officers have begun connecting financial literacy with a student's long-term ability to thrive in college and in a career.
"For a majority of students, college means student loan debt, which will be carried for years beyond graduation," said Paul Goebel, director of the Student Money Management Center for the University of North Texas. "Research has shown that as debt from the college years increases, graduates postpone major life milestones including marriage, home ownership, even children."
According to Goebel, incoming freshman sometimes find that financial aid does not cover all of their college and living expenses, and working part time may not necessarily offset extra costs. Students look for help from Goebel's office, often as the first step to becoming independent money managers.
"Many freshmen are intimidated by the unknown — what skills are needed? Where do they begin? What happens if they make mistakes? How do they talk with their parents?" he said.
Goebel sees his role as essentially a guide for students. His office assesses each student's financial skills and then works with the individual to cultivate effective money management skills. He often has to remind students that, to succeed financially, commitment is required, whether it be time, money, or lifestyle changes.
More colleges are offering financial counseling services to students, or even requiring mandatory courses on academic skills and money management. These services are very timely, considering that student loan debt has doubled over the last decade, and bankruptcy rates are rising for those in the 19- to 25-year age bracket.
Colleges need to do more to prepare students for the future, according to Goebel, especially with tuition and living costs continuing to rise.
"Financial literacy is so important to students because every life decision they will make has a financial component to it," he said. "We have to help them bridge their skills today with the path they see for themselves in the future. Identifying that path should be our priority in guiding students towards financial independence."
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For tips on how to establish high expectations for students as early as middle school and for assistance in planning for higher education academically and financially, visit www.AIE.org. TG provides this Web site has a public service to help all families and students achieve their educational goals and career dreams.
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